After a strong start to the summer, the United States labor market cooled in August. Nonfarm payrolls rose by 156,000, which was less than the 180,000 many economists predicted. While employment growth was lackluster, August was the 83rd straight month the U.S. economy has added jobs. This is the longest streak on record and an indicator the labor market is still on solid footing.
August is a difficult month for data collection and part of the cool-down may be explained by seasonal quirks. As the government surveys households and businesses regarding employment, they run into a problem common to August – people are on vacation. This, coupled with the start of the school year, typically results in the underestimation of hiring. In addition to the less-than-expected employment gains, the unemployment rate rose slightly from 4.3 percent to 4.4 percent.
Top Takeaways from the Report:
Hurricane Harvey is not reflected in August’s report: The government collected the data needed for August’s jobs report before Hurricane Harvey made landfall. So, the effects of the disaster will not begin to be reflected until September’s report. If Hurricane Katrina is any predictor, then the leisure and hospitality; trade, transportation and utilities; and education and health services sectors will be among the hardest-hit industries. In the most damaged areas post-Katrina, employment in these sectors fell more than 20 percent the following month.
The disappointing employment growth was not surprising: Nonfarm employment rose by 156,000, while private employment rose by 165,000. Both of these indicators came in lower than expected, but with the seasonal quirks of August in mind, many economists expect upward revisions in the coming months. Nonfarm employment for June and July was also revised lower from 231,000 to 210,000, and 209,000 to 189,000, respectively. With these revisions, the U.S. labor market has added roughly 185,000 jobs per month for the past three months.
Unemployment rose, but remains low: The unemployment rate rose slightly from 4.3 percent to 4.4 percent. While the unemployment rate ticked up marginally, it is still representative of a tight labor market. A broader measure of unemployment – that includes the underemployed and marginally attached workers – remained flat at 8.6 percent.
The labor force participation rate didn’t budge: The labor force participation rate once again came in at 62.9 percent. The rate – which measures those who are working or looking for work – has remained under 63 percent since March of this year, and is struggling to break to the upside. Bringing more individuals off the sidelines and into the labor force would be a positive signal for the labor market and economic growth, but there are major factors, such as the retirement of the baby boomers, which may be preventing a rise.
Wage growth shows no sign of rising: Year-over-year wage growth has been stuck at 2.5 percent since April of this year and this month was no different. As the labor market remains tight, many experts have expected wages to rise, but it just hasn’t happened. Long-term trends, such as the retirement of the baby boomers and entry of lower-wage workers, appear to be putting downward pressure on wage growth.
Growth by Industry
- The manufacturing sector added 36,000 jobs, the largest gain in four years. The sector has been on a hiring spree and has added 137,000 jobs since the start of 2017. This is a boon for the new administration, as manufacturing growth has been a major focus both on the campaign trail and in office.
- Despite losing 3,000 jobs in July, the construction sector added 28,000 jobs in August. This is a positive for the industry, as a lack of qualified talent has hampered growth and slowed projects. The industry will need many more jobs in the months to come as Texas and the nation recover from the effects of Hurricane Harvey.
- The leisure and hospitality industry took a back seat in August, adding only 4,000 jobs. Including this month’s number, the industry has averaged 34,000 jobs per month over the last six months. This was the slowest August for the sector since August 2009.
- The professional and business services sector added the largest number of jobs in August at 40,000. The sector has added 602,000 jobs since August of last year.
- Education and health services added 25,000 jobs, with 20,000 of those being added in the health care sector.
The Bottom Line: The United States labor market added fewer-than-expected jobs in August, but kept up its record hiring streak of 83 months. Some of the slowdown in August may be attributed to seasonal data collection quirks, due to individuals and business owners taking vacations and getting ready for the school year.
The overall economy appears to be on solid footing, with second quarter growth being revised up to 3 percent and continued job gains in the labor market. The full effects of Hurricane Harvey are still unknown, but will no doubt have far-ranging implications for years to come.
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